I’ve got DCB few months back and have been really excited to get 33.3% cash-back value. However, while doing some fun maths, I realised something which is not very obvious. In my mind, I was assuming this as 33.3% discount which is not correct. I knew that discount and cash-back are different but at the back of my end I thought they would be quite closer to each other. But it seems I was wrong and it becomes more evident at higher values. Let me put it across with few examples:

Say, Price of product = Rs 100

Discount Scenario

Discount = 10%

Net Amount Paid = 90

Net Value = 100

=> Discount = (100-90)/100% = (Net Value – Net Amount Paid ) / (Net Value)%

Cashback Scenario

Net Amount Paid = 100

Cashback = 10 (some product worth Rs 10 like travel vouchers)

Net Value = 110

=> Equivalent Discount = (110-100)/110% = 9.1%

*Yeah, we got this but there is only <1% difference, which we can easily ignore!! What’s the point!*

Now, let’s do the same thing to the 33.3% rewards points.

Say, price of a 10x gift voucher = 150

Rewards point gained = 5*10 = 50

Net Value = 150+50 = 200 ( assuming 50 points = Rs 50 for travel )

=> Equivalent Discount = (200-150)/200 = 25%

*aah, I see where this is going *

Since I’ve just recently got the card, I don’t have experience of redeeming the reward points. But I think it’s fair to assume that if we book the flights/hotel from elsewhere we can easily get 10% discount which we won’t get in booking via SmartBuy rewards points. If this is right, there is a 10% loss here.

=> 50 rewards point = Rs 45 Value for travel

=> Equivalent Discount = ((150+45)-150)/(150+45) = 45/195 = 23.1%

*pheww..you are breaking my heart, please stop *

This one might be an overkill but can’t stop myself from sharing. Generally, we collect the points throughout the year and do trips say once or twice in a year. We can fairly assume that on an average reward points are sitting idle for around 6 months on an average in the account. Taking, 6% nominal yearly interest ( what we can earn putting our idle money elsewhere ), we can say that we are losing 3% value due to opportunity cost because of these reward points. Not sure what’s the best way to include this in calculation, but here’s what I did.

=> 50 rewards point = 50 * (100-3)% * (100-10)% = 43.65

=> Equivalent Discount = 43.65/193.65 = 22.5%

*…you are mean…bro… *

PS: These are still few of the best rewarding cards, it’s just that if the above calculations are correct, we should probably think about the rewards in a slight different way than casually saying 33.3%.

Edit: Since few are getting confused, the cashback being referred here is not hard cash but product/services of the amount equivalent to cashback. Adding one more generic example to elaborate my point.

Rs 100 product at 50% discount costs Rs 50. => at Rs 100 you can get products of value Rs 200.

Now, in cash-back scenario, with Rs 100 product you are getting a product of Rs 50 free. => at Rs 100 you are getting products of value Rs 150. => effective discount = 50/150 = 33% only.